Tuesday, July 14, 2009

Many un-informed journalists, citizens, politicians & idiots complain about the 'margins' or 'spreads' charged on goods & services. On the surface that is true. Kenyan businesses tend to have wider spreads than what is common in the Western world.

(Let's be clear... I am NOT condoning any sort of scam or counterfeiting or shortchanging or cheating... I am talking of WYSIWYG)

I will try to provide specifics instead of 'general comments' favored by the group/s above.

Let's look a little deeper:

Inefficiencies - Many firms e.g. Kenol-Kobil have to deal with an inefficient oil importation regime. They are forced to process 50% (by law 70%) of their requirements through Kenya Petroleum Refineries Ltd (KPRL) which uses much older technology (hydro-skimming) as well as being sub-optimal in size. This leads to lower high-value (white fuels) derivatives. Cost to Kenyans an additional 3/- per litre.

Corruption - Many firms e.g. Kenol-Kobil are forced to pass on additional 'charges' to consumers since the management of Kenya Pipeline Company (KPC) has a history of being involved in corrupt deals (including tenders to extend the pipeline). The latest scandal was Triton-KPC. Cost to Kenyans is hard to determine but definitely high.

Legal system breakdown - HFCK will take defaulters to court but the case could take 5 years even if HFCK has all the cards. Why? An over-burdened court system which does not have a dedicated 'business' court. Deferrals are common as lawyers postpone, postpone & postpone hearings. And when they do show up, the judge/magistrate does not.

KRA (non)refunds - KRA collects VAT, duties, taxes, etc. Penalties abound if a business is late in remitting the payments. In the event of a refund... get in line. We are not talking of disputed refunds. Even simple refunds are not paid to the businesses in a timely manner. KRA claims they are given KShs 1.04 billion per quarter for refunds REGARDLESS of what they collect. Kenol-Kobil & Total could have KShs 1,000,000,000 outstanding to each of them at any one time. So they borrow from the market. And add financing costs to our petrol price.

Taxes ad infinitum - The government imposes horrendous amount of taxes in the form of levies, duties, VAT, income tax, etc. Then there are property taxes, license fees, payroll taxes, etc. A retail outlet in the CBD with a 10% margin can't even break-even. And this is before rent is due!

Insecurity/theft - Theft by employees is pretty common in Kenya. And I do not mean office supplies. I have so many personal examples. My Dad (an engineer/entrepreneur) used to scour Industrial Area factories for jobs - rewind/resuscitate old (burnt) motors. Reduced imports. Saved Kenya forex. Helped the environment. Provided Kenyans jobs. While he was juggling sales, accounting, etc... the employees were busy stealing & selling NEW copper wire (used to rewind motors) as scrap metal. He soon found out about the theft since income didn't match expenses. The copper wire was bought on credit. He paid the suppliers out of his pocket. Heart-broken. Fired ALL the employees. Shut the business down.

Uncertainty - Uncertainty is very costly. The KShs careens all over the place because of Kenya's fragility. These ups & downs creates problems. Look at the volatility of the Kenya Shilling. Or how volatile oil prices caused KQ's KShs 7.5 billion loss on hedges. Or the 'fear' of violence in almost every election. Fear had gripped the country in 2002. and when Kenyans relaxed in 2007, it blew up in their faces.

Friday, July 10, 2009

KenGen & KPLC - They are raising their rates since Kenya has a shortfall of Hydropower. And the politicians bicker & dither over the water catchment areas. Even worse? We are setting ourselves up for a massive famine.

Welfare Programs (Cash handouts) - Does anyone beside me see the potential for abuse? And where is the GoK going to get funds for this?

Subsidies - Overall, these drain the coffers while imposing a burden on the greater society. Fertilizer subsidies matter little if there is NO water.

Water Shortages - No action on water catchment areas. Forest being decimated. And prime forest land continues being 'allocated' to & by politicians.

Crime - Nairobbery deserves its name. No more "Green City in the Sun". Even the Prime Minister's office was broken into. So much for security! This article is a must read. Even Mombasa is being hit by the crime wave. I used to walk around Old Town at 1am... no fear... not the same anymore...